What is a Business Model? - Definition & Relationship to Operations

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  • 0:07 What Is a Business Model?
  • 0:39 Types of Business Models
  • 1:20 Business Models and Operations
  • 2:23 Forming a Business Model
  • 3:34 Lesson Summary
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Lesson Transcript
Instructor: Christian George

Christian has a PhD in Business Management and an MA in Accounting & Financial Management

This lesson introduces the business model and how it drives operations within a business. It also demonstrates how dynamic the business model is and how businesses adapt the model to meet operational needs.

What Is a Business Model?

Claire is a chief operations officer, and she has gathered her managers for a brief training session. She opens by asking, 'What is a business model?' One of the managers answers, 'It's a model of how we do things around here.' While this answer gives us a very broad idea of what the concept is, a business model is, more specifically, a company's plan to generate revenue through operations, with the goal of making a profit. In other words, it's how the manufacturing company plans on making money through what they do.

Types of Business Models

Each of the different industries out there have their own specific type of business model. Manufacturing is different from retail, which is different from a distributor. Regardless of what type of business a company has, the business model will be generic as to industry but specific as to the fine tuning of departments, processes, and procedures.

However, there also is a special type called the franchise model, which is a business model that is specific to franchises. Let's look at the McDoogle's restaurant chain as an example. McDoogle's is a franchise. There is a franchisee that answers to McDoogle's corporate. He is a retailer but also can act as a manufacturer and distributor.

Business Models and Operations

Now that we have the basics covered, we can get down to the nitty gritty: operations, the daily activities and functions of a business completed to make money. Let's return to Claire and her training session.

As chief operations officer, it's Claire and other executive's responsibility to ensure that the company is effective in its operations and efficient in using company resources to meet customer demand and reach company goals. Those responsibilities trickle down to the department managers who then pass them on down the line to their staff. Then, the managers must pass the results of operations upstream from their departments, so that senior management, like Claire, can determine necessary changes in operations.

The most important thing needed for this to work smoothly is communication. The ability to communicate effectively will determine the outcome of operations. The business model is important because it is the framework for operations, but all of it is in vain if we aren't able to communicate the needs of our departments, the needs of the company, the results from operations, and methods for improvement.

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